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Cost savings of internalisation 'overstated', says ESR Group, after resolution of defamation action against Quarz

Felicia Tan
Felicia Tan • 3 min read
Cost savings of internalisation 'overstated', says ESR Group, after resolution of defamation action against Quarz
NTP+, one of the properties under Sabana REIT. Photo: Samuel Isaac Chua
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ESR Group, on April 8, announced that it has successfully resolved the lawsuit levelled against activist investor Quarz and its executives, Jan Frederic Moermann, Havard Chi and Klaus Wille. Moermann is Quarz’s chief investment officer (CIO), while Chi is its head of research. Wille is its general manager.

ESR took legal action for claims of defamation, malicious falsehoods and conspiracy in connection with various publications spanning from June 7, 2023, to July 26, 2023. These publications were shared on Quarz’s website and other sources within its control in the lead-up to the extraordinary general meeting (EGM) held on Aug 7, 2023, for the internalisation requisition.

In its statement, ESR Group said that Quarz has agreed to remove all of these publications as part of the settlement and its allegations against ESR Group.

Quarz had previously noted that the internalisation would save Sabana REIT some $7.25 million of fees. This is “incorrect” and “an error”, says ESR.

See: This is the cost of running Sabana REIT’s manager; are savings from fees worth the risk?

As part of the settlement, Quarz admitted that its statements “should not be understood to mean that [ESR Group] had acted or were acting in actual or potential conflict of interest”. It also admitted that it was “not alleging that ESR Group used ‘scare tactics’ against unitholders of Sabana REIT”.

See also: Mapletree Logistics Trust logged highest retail net inflows among S-REITs in 1Q2024

“Quarz has also confirmed that it will not be making the above allegations against ESR Group in the future,” says ESR in its April 8 statement.

“We have always maintained that the cost-savings of internalisation have been grossly overstated and Quarz’s proposal does not take into full consideration the complexities of the internalisation process and the significant time and costs it will take, as per the trustee’s comments. The entire episode has resulted in a diminished value of the unit price of Sabana REIT,” it adds.

In addition, the lost value, does not account for the costs of about $3.27 million incurred as at Dec 31, 2023, from the process of internalisation, notes the group.

See also: New CEO for CLINT's trustee-manager

“The mounting costs that the unitholders will have to bear is also exacerbated by the March 8 EGM which was convened pursuant to the Sabana Growth Internalization Committee’s (SGIC) requisition (where Quarz is a leading member), resulting in delays to the trustee’s court action. All these factors impact Sabana REIT’s performance and its distribution per unit (DPU),” it continues.

“For us, the only goal is to achieve unity and profitability for all unitholders. We seek to work with all parties to ensure an outcome that is in the best interests of all unitholders.”

The statement comes after Quarz released a statement on April 5 stating that it had reached an “amicable resolution” with ESR “without any admission of liability on the part of either party”.

Moving forward, Quarz will “now be fully focused on supporting Sabana unitholders, SGIC, and HSBC Institutional Trust Services (Singapore) Limited” to ensure that the internalisation of Sabana REIT’s manager “can be completed as expeditiously as possible”.

On its part, ESR Group said that the choice made to “pursue an amicable approach instead of legal action” was done in a bid to prioritise the REIT and unitholders.

As at 4.27pm, units in Sabana REIT are trading flat at 36 cents.

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